Maria just inherited $10,000. Her bank has a savings account that pays 4.2% interest per year. Some of her friends recommended a new mutual fund, which has been in business for three years. During its first year, the fund went up in value by 12%; during the second year, it went down by 20%; and during its third year, it went up by 15%. Maria is attracted by the mutual fund's potential for relatively high earnings but concerned by the possibility of actually losing some of her inheritance. The bank's rate is low, but it is insured by the federal government. Find the expected value of her investment after three years if she invests in the mutual fund. (Assume that the fund's past behavior predicts its future behavior. Round the answer to two decimal places.)

EV = $????

Use decision theory to find the best investment.
The bank's savings account is the better investment.
The new mutual fund is the better investment.
The bank's savings account and new mutual fund are equal investments.

To find the expected value (EV) of Maria's investment in the mutual fund, we need to calculate the value of her inheritance after each year and then apply the appropriate percentage changes.

1. Calculate the value after the first year: $10,000 * (1 + 12%) = $10,000 * 1.12 = $11,200

2. Calculate the value after the second year: $11,200 * (1 - 20%) = $11,200 * 0.80 = $8,960

3. Calculate the value after the third year: $8,960 * (1 + 15%) = $8,960 * 1.15 = $10,304

Therefore, the expected value of Maria's investment in the mutual fund after three years is $10,304.

Now, let's compare this with the bank's savings account. The bank's savings account pays 4.2% interest per year, so we can calculate the value after three years using the compound interest formula:

Principal * (1 + interest rate)^time

Principal = $10,000
Interest rate = 4.2% = 0.042
Time = 3 years

Value after three years = $10,000 * (1 + 0.042)^3 = $10,000 * 1.13577 = $11,357.70

Comparing the expected value of the mutual fund ($10,304) with the value of the bank's savings account ($11,357.70), we can see that the bank's savings account is the better investment option in terms of expected value.

Therefore, according to decision theory, the bank's savings account is the better investment for Maria.